What started as a resilient session for wheat futures ended in something more like capitulation, as ideas
of fresh Russia-Ukraine tensions faded.

Chicago soft red winter wheat for September ended down 1.9% at
$5.28 a bushel, near its day low.

Kansas City hard red winter wheat for September finished
down 1.5% at $6.04 £ a bushel, a contract closing low, and indeed the weakest
finish for a spot contract in two years.

The weakness was blamed in part on staleness in the Moscow-Kiev
tensions theme which has been a big support for prices for much of 2014, with no
spillover yet from a Russian aid convoy being sent to eastern Ukraine.

In Russia, the Micex share
index added 1.5% in a sign of investor confidence.

'The dagger...'

However, there was also the backdrop of the
bigger-than-expected upgrade by the US Department of Agriculture on Tuesday, in the Wasde report, to the forecast for world wheat stocks at the close of
2014-15, raising it to 193.0m tonnes, and reflecting improved global harvest
hopes.

"The dagger for wheat on yesterday's report was an increase
of 11m tonnes on global production, with 8m tonnes of this increase priced to
sell out of the Black Sea region," broker Benson Quinn Commodities said.

"These changes will continue to cap rallies in US wheat
futures."

CHS Hedging said: "Price will struggle with large world
stocks hanging over the market in the days ahead."

'Very low number'

Besides, there have been a dearth of high-profile wheat
import tenders, and what data on US wheat exports have been issued have been
largely soft.

"The US becomes a smaller and smaller player in the world
market on a monthly basis," said Darrell Holaday at Country Futures.

"I am not sure how USDA [in the Wasde] increased US wheat
exports for this crop year 25m bushels," but the 925m bushels they raised it to
"is still a very low number".

Paris milling wheat futures for November fared a little better,
in dropping 0.4% to E171.25 a tonne, although London feed wheat for November proved
best in class with a modest 0.2% gain to £122.25 a tonne - albeit a rise fuelled
by currency movements rather than fundamentals.

Sterling fell after data showed UK wages falling for the
first time since 2009, making a rise in interest rates less likely.

A weaker pound, which fell to a four-month low against the
dollar, in turn improved the competitiveness of UK wheat exports, which look to
be more of a feature this season after their dismal performance in 2013-14.

All ears

Back in Chicago, there was plenty of negative comment on
corn price prospects too, with a widespread expectation that the USDA yield
forecast of 167.4 bushels per acre unveiled in the Wasde, while a record, will
be upgraded further.

"Derived ear weight was deemed the third highest on record,
leaving room for a revision higher," CHS Hedging said.

"Many in the trade are pondering this closely."

"It is really hard to believe that corn ear weight in the
top 10 states will just be the five-year average," Darrell Holaday said.

"More likely it will be closer to the 2004 level. That would
push yield up to the 172-bushels-an-acre area."

'May be an interim
low'

However, CHS said that with the USDA yield figure on the
table, the contract low of $3.58 a bushel in December corn set in the last
session, "may be an interim low, for now.

"It will take higher yield revisions to break $3.50 a bushel."

And, on the demand side, the USDA announced the export sale
of 107,600 tonnes of corn to Mexico for 2014-15, and 130,000 tonnes to "unknown".

US ethanol production data were firm too, at 931,000 barrels
a day last week, up 29,000 barrels a day.

With stocks down too, by 590,000 barrels at 17.76m barrels,
indicating demand for the biofuel, September ethanol futures soared 5.2% to
$2.179 a gallon.

Corn for December ended 0.2% higher at $3.69 ½ a bushel.

Soybeans vs corn

There is also a feeling that investors are keener to unwind
long November soybean-short December
corn spreads with the prospects for the US crop in the oilseed looking better.

Indeed, some brokers are recommending short November soybean-long
December corn spreads, with prices of the oilseed seen containing risk premium which
will evaporate with the continued decent prospects for the US crop.

Much risk premium disappeared from corn with last month's
benign weather for pollination.

November soybeans fell 1.2% to $10.46 ½ a bushel, a contract
closing low, cutting the November soybean: December corn ratio to 2.83:1, well
below recent levels of 2.9:1 and above.

Reviving cotton

Among soft commodities, cotton
had a decent day, adding 2.1% to 64.72 cents a pound in New York for December, recovering
further from last week's contract low of 62.02 cents a pound, amid ideas of decent
demand at lower levels, closer to those of polyester.

Societe Generale also raised some questions over Wasde
upgrade to the forecast for this year's US cotton crop.

"While conditions are rather benign in the US South East and
Mississippi river Delta areas, conditions in Texas are not as favourable,"
SocGen analyst Christopher Narayanan said.

"Approximately 1-2 inches of rain are needed in the next week
or two to finish the crop."

For prices, "we view upside risk more likely than downside
at present time", he added.

Mixed sugar

But raw sugar put
in another negative session, ending down 0.2% at 16.02 cents a pound for
October delivery, if reluctant to stay below 16 cents a pound, with some
recovery from a six-month low of 15.97 cents a pound set earlier.

While industry group Unica on Tuesday reported a sharp
slowdown in Brazilian Centre South sugar production, "the market seemed to be
anticipating a bullish report", Sucden Financial said.